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Home > Monetary Policy > Monthly Report of Recent Economic and Financial Developments 2010 > Monthly Report of Recent Economic and Financial Developments February 2010 (Summary)
(English translation prepared by the Bank's staff based on the Japanese original)
February 19, 2010
Bank of Japan
Japan's economy is picking up mainly due to various policy measures taken at home and abroad, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand.
Exports and production have been increasing. The decline in business fixed investment has been coming to a halt. Private consumption, notably durable goods consumption, is picking up mainly due to policy measures, despite the continued severe employment and income situation. There are some signs that housing investment has stopped decreasing. Meanwhile, public investment is leveling off.
Japan's economic conditions are likely to continue improving, although the pace of improvement is likely to remain moderate for the time being.
The uptrend in exports and production is expected to continue, reflecting continued improvement in overseas economic conditions, although the pace of increase is likely to moderate gradually. Business fixed investment is likely to remain more or less unchanged for the time being, with corporate profits remaining at a low level and the sense of excessive capital stock being strong. Private consumption is likely to remain more or less unchanged for the time being amid the severe employment and income situation, despite the underpinning effect of policy measures. Meanwhile, public investment is likely to decrease gradually.
On the price front, the three-month rate of change in domestic corporate goods prices has recently risen somewhat, reflecting the earlier increase in commodity prices, in spite of the persistent slack in supply and demand conditions for products. Consumer prices (excluding fresh food) have been declining on a year-on-year basis due to the substantial slack in the economy as a whole, but the pace of decline has been moderating mainly reflecting developments in the prices of petroleum products.
Domestic corporate goods prices are likely to rise somewhat or remain unchanged for the time being. The year-on-year pace of decline in consumer prices is likely to remain more or less unchanged for the time being, and then moderate as the aggregate supply and demand balance improves gradually.
The weighted average of the overnight call rate has been at around 0.1 percent, and interest rates on term instruments have remained more or less unchanged. Meanwhile, the yen's exchange rate against the U.S. dollar, long-term interest rates, and stock prices have remained at more or less the same levels as last month.
The financial environment, with some lingering severity, has continued to show signs of improvement.
The overnight call rate has remained at an extremely low level, and the declining trend in firms' funding costs has continued. The stimulative effects from low interest rates are still constrained by the low level of economic activity and corporate profits, but the degree of constraint has begun to moderate. With regard to credit supply, although many firms still see financial institutions' lending attitudes as severe, firms as a whole regard the situation as improving. Issuing conditions for CP and corporate bonds have remained favorable, except for low-rated corporate bonds. As for credit demand, firms' need to fund working capital and fixed investment has declined, and some firms have reduced the on-hand liquidity that they had accumulated. Against this backdrop, bank lending has declined on a year-on-year basis, partly due to its high growth a year ago. The amount outstanding of corporate bonds has exceeded the previous year's level, while that of CP has declined. In these circumstances, although many firms, mainly small ones, still see their financial positions as weak, on the whole firms' financial positions have continued to improve. Meanwhile, the year-on-year rate of change in the money stock has been at around 3 percent.